2. Credit Risk Methodology

Estimating credit risk in unlisted infrastructure debt can be challenging because actual defaults are rarely observed. Due to the significant control rights of lenders in infrastructure project finance in particular (aka step-in rights), action is often taken by lenders before a default of payment takes place. 

Looking at raw data, the debt service cover ratio (DSCR) of infrastructure companies seldom goes below 1, which would be the point of 'hard default'. Instead, it typically bounces back whenever it approaches 1, suggesting that low DSCRs do trigger 'credit events' (soft defaults) and restructurings by creditors.

A number of credit analytics including probability of default (PD), loss given default (LGD) and more can be computed on the basis of survival analysis.